Comment on the decision made by the controller

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Problem

Currently under consideration is the purchase of a new street cleaner. The controller has estimated that the city's old street cleaning machine would last another five years. A new street cleaner which also would last for five years can be purchased for $50,740. It would cost the city $14,000 less each year to operate the new equipment than its costs to operate the old machine. The expected cost saving s with the new machine are due to lower maintenance cost. Thus, the new street cleaner will cost $50,740 and save $70,000 over its five-year life. Since the $70,000 in cost savings exceeds the $50,740 acquisition cost the controller concluded to purchase the new machine. Assume discount rate of 10%. Comment on the decision made by the controller. Get the instant assignment help. Do you think her analysis and decision is correct?

Reference no: EM133908325

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